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Beta (β)
Definition
A measure of a stock's sensitivity to overall market movements.
How It Works
Beta of 1.0 means the stock moves with the market. Beta > 1 is more volatile; beta < 1 is less volatile. Beta is used in CAPM to estimate cost of equity.
Example
A stock with beta 1.5 is expected to move 15% when the market moves 10%.
Common Misconceptions
- ✗Beta measures total risk (it only measures market risk)
- ✗Negative beta is impossible (gold stocks can have negative beta)
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Common questions about Beta (β)
Financial data providers like Bloomberg, Yahoo Finance, or your textbook's data tables.
Yes. Beta is estimated from historical data and can shift as a company's business mix, leverage, or industry dynamics change. This is why analysts sometimes use industry-average betas or adjust for expected changes.
More Glossary Terms
📉 Discount Rate🧮 Net Present Value (NPV)🎯 Internal Rate of Return (IRR)⚖️ Weighted Average Cost of Capital (WACC)📈 Beta (β)📊 Capital Asset Pricing Model (CAPM)🛡️ Risk-Free Rate💹 Market Risk Premium💲 Cost of Equity🏦 Cost of Debt♾️ Terminal Value💸 Free Cash Flow🏢 Enterprise Value🚧 Hurdle Rate🔁 Annuity♾️ Perpetuity💵 Yield to Maturity (YTM)✂️ Coupon Rate📅 Amortization🔍 Sensitivity Analysis